Why workers should retire at 60

What say you on the issue below?

Attracting and retaining talents, boosting productivity of workforce some of the reasons why this should be a non-issue.

I HAVE been writing on the need to increase retirement age since the 1990’s, not just to benefit workers (not every worker wants to work until they drop) but as an economic tool to increase overall productivity of the nation.

I have been chastised by many an employer and policymaker.

It is encouraging that of late the consensus has shifted in favour of an increase in retirement age. Employer groups like MEF who had opposed it initially has come out in support of the move. The EPF has also publicly stated its support. The arguments are too compelling to ignore.

Attract ing talents: Youths listening to counsellors at the Agriculture Sector Career Carnival in Kuala Lumpur in this file pic.

I am again calling the Prime Minister to announce in his budget speech the raising of the retirement age of civil servants to 60 to make it more compelling to introduce Mandatory Minimum Retirement Law to compel private sector employers to do the same.

One of the strong arguments against raising the retirement age for civil servants is it would incur additional expenditure for another two years. Nothing can be more wrong. The government actually saves money.

This is how the editor of The Star put it: “It will mean having a person at a top salary bracket serve an extra five years instead of giving that person a golden handshake, pay him 50% of his salary for the rest of his life doing nothing, and replace him with another person at the salary of the retired person.”

(Of course there are some who claim that some civil servants are not working anyway, but that is another story).

There have been a lot of debate in the public domain the past few weeks. I would like to add to the momentum and revisit some of my writings on this lifelong issue.

The retirement age for civil servants was set before World War II to enable British officers serving in Malaysia to return home to England with a pension. The retirement age in the UK at that time was already 60. The Malaysian retirement age was finally raised to 56 in 2005 and to 58 in 2009.

By and large, the private sector stuck to 55 instead of going for 58 like the public sector although some employers have retired their senior employees at 60.

Airline stewardesses are retired at a much younger age, and quite a lot of other private sector employers retire their female employees at 50.

There is therefore gender inequality and discrimination against lower ranking employees.

Malaysia has among the lowest retirement age and among the highest life expectancy (79 years) in the world. Singapore, Philippines, Laos, Thailand and even Brunei have extended the retirement age to between 60 and 65.

We are grouped with Nigeria and Burkina Faso, Guinea, Bangladesh and Nepal. This is unacceptable in a country that aspires to be fully-developed in nine years.

Empirical evidence and studies have shown overwhelming support for an increase in retirement age to address the following issues:

*Increase in life expectancy. In 1950 our life expectancy was 49 years and retirement age was 55. Now we live up to 79 due to better health.

*Reducing the cost of pension and burden on governments to provide healthcare and old age welfare.

*Boosting public finance through increased tax collection as people work longer and thus pay taxes longer.

*Changing demographic patterns and family structure. This puts tremendous pressure on the younger working population to support the increasing older non-working population if retirement age is not raised. Malaysians are entering the workforce at a later date after having completed tertiary and professional education. They are also marrying and having children at a later age which means that at age 55 they will still have to support their school-going children.

*Boosting the overall productivity of the workforce. This is achieved as more people stay in employment longer. It can boost enterprise productivity by encouraging better human resource management, and facilitate introduction of performance pay system.

This is because companies can no longer rely on retirement as a manpower attrition tool. It will also help in restructuring employment to allow younger workers currently in low value added jobs (example, toll attendants) to higher value jobs.

*Attracting and retaining talents. The government is trying to attract Malaysians abroad to return home. A lot of these talents are 50 and above and are working in countries with retirement age that are much higher than Malaysia’s. It is unlikely that they will want to uproot their families and return home to work if they are forced to retire at 55. We are also losing a lot of talents when employees retire at 55 and quite a number of them migrate to other countries to continue working.

*Raising levels of household income. Allowing workers to continue in gainful employment longer (on similar terms and benefits) will increase household income and reduce incidences of poverty.

*Contribute to domestic demand and GDP. Studies in the UK have shown that raising retirement age by five years would increase GDP growth by 0.2% per year. The economy will benefit from older workers’ precious skills and experience and their increased purchasing power.

*Ensuring adequate retirement savings when workers finally retire. EPF figures show that 82% of contributors do not have enough retirement savings to live at the poverty line. This can be drastically reduced to less than 25% if retirement age is raised to 65 years. A higher retirement age reduces the pressure to increase EPF contribution rates.

*Reducing reliance on foreign workers. Just compare Changi airport in Singapore where Singaporeans in their late fifties and early sixties are efficiently maintaining the airport, while KLIA is flooded with Bangladeshis.

I would also like to address some misplaced concerns over raising the retirement age:

*Unemployment — Raising retirement age could deny a younger person entry into the workforce. Our unemployment rate is 3.9%, which is considered full employment in accordance with World Bank standards. We have at least 2.3 million foreign workers - almost 25% of the workforce. As such, this concern is misplaced.

Older workers remaining in the workforce longer actually create more employment opportunities for younger people through increase in domestic demand for goods and services needed by a larger working population.

*Promotion opportunities. Increasing retirement age will deny promotional opportunities for younger employees. This view is only valid in the old fashion human resources thinking that promotion should be based on age and seniority. Promotion must be based on relevant skills and competencies and experience.

*Productivity and deadwood. This is very insulting to all Malaysian workers and implies that those who are 54 years are all sick, unproductive and problematic.

Productivity and efficiency is not an age issue. It is a human resource performance management issue. This must be addressed whether retirement age is increased or not.

If at all there are deadwood then it reflects a sorry state of affairs and dismal human resource management in companies that allow employees to remain deadwood.

The benefits to the country of an increase in retirement age cannot be hijacked by employers who have failed to manage their workforce so much so that they now have so many deadwood. And the claim by the Federation of Malaysian Manufacturers that our labour laws relating to termination is rigid is not supported by evidence.

*Cost. The belief that older employees cost more than younger workers and are less productive is not substantiated by empirical evidence.

Studies have shown that workers over 55 are five times less likely to change jobs than those age 20 to 25.

This increased rate of retention will result in dramatic savings in recruitment cost and greater investment returns on training.

Mature workers also help maintain corporate memory and showed much lower rate of absenteeism.

Higher life expectancy indicates better health and debunk the myth that older workers are sickly.

Studies have shown that older workers are less prone to work related injuries, substance abuse and lifestyle health issues.

And older employees show less absenteeism, lower turnover, fewer accidents, higher job satisfaction and more positive work values than younger workers.

*Exemptions. Another issue is that some employers are lobbying for certain sectors to be exempted from the proposed increase, arguing that construction industry for example requires heavy manual labour and a 56-year-old person does not have the physical strength to carry on.

I would reject this view because those who think that a person aged 56 cannot pick up a shovel and push a laden wheelbarrow are those who have been sitting in an air-conditioned office pushing pen and paper.

Just because they themselves require a caddie to carry their golf bags does not mean that a manual labourer who has been doing manual labour for the past 30 years cannot continue for another five years.

*Some employees may not want to continue working. Some claim that mandatory retirement age may force employees to continue to work when they themselves don’t want to.

Please note that private sector employees do not have a pension system. So anyone who does not want to continue working can easily resign by giving the requisite notice as stipulated in their contracts.

There is no substantial material difference in the retirement benefits between employees who resign or retire as almost all private sector employees contribute to the EPF for the retirement.

*Re-engaging retirees on year to year contract. This is often limited to high ranking employees only. Given the unequal bargaining power, employees are often forced to accept inferior terms and conditions of employment.

It is my strong belief, supported by all empirical evidence that setting the retirement age at 60 by Jan 1, 2012 and increase it by one year every three years until the age of 62 by 2018 and 64 year by 2024, is in line with our aim to be a high-income nation.

This will allow companies to make the necessary adjustments to their manpower planning and allow employees nearing retirement to adjust their retirement plans too.

So over to you Mr Prime Minister.